Community Hospitals in Indianapolis

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Community Hospitals in Indianapolis: An Organizational Case Study

Conference Organizational Scenario | January 1999

Community Hospitals Indianapolis (CHI) was a vertically integrated health care system serving a nine-county region. It encompassed four tertiary care hospitals, six immediate care centers, three nursing homes, and more than 270 affiliated primary care physicians spread across approximately 120 offices. Physicians maintained a range of relationships with CHI -- some were employed, some were independent with privileges at one or more CHI hospitals, and others belonged to groups that had entered into joint ventures with CHI as majority owners. Nearly all were members of MedPrime or SpecPrime, CHI-sponsored IPAs for primary care physicians and specialists, respectively.

The Indianapolis Market

Four hospital-based systems dominated the provider market in Indianapolis, each sponsoring or partnering with a health plan. These plans shared the market with two additional insurers. Managed care was concentrated in PPOs, with HMO penetration remaining low, though a substantial amount of business was paid on a global capitation basis to physician-hospital organizations. Most physicians practiced in small, single-specialty groups, and most primary care practices had been purchased by one of the four health systems. Despite a significant oversupply of specialty physicians, health care costs in the area were relatively stable and consumers were generally satisfied with the cost and quality of care.

Organizational Structure

CHI organized its physicians through two subsidiary IPAs, each governed by a physician-dominated board. MedPrime encompassed family practitioners, pediatricians, and general internists, while specialists belonged to SpecPrime. Physicians participated in regular administrative and clinical meetings under IPA auspices but could be affiliated with CHI in one of three ways. Historically, most CHI physician partners were independent contractors in solo practice. In the mid-1990s, when competing health systems threatened to acquire CHI's physician base, the system defensively purchased about 100 practices, binding doctors to five-year contracts at generous salaries. Financial losses among these owned practices subsequently led to a third model: limited liability corporations in which physicians held 51 percent ownership.

Risk contracts were negotiated by CHI's physician-hospital organization, Indianapolis ProHealth, which received capitated payments from payers and divided them among hospital, primary care, and specialist representatives. Physicians interfaced with the IPAs through Care Councils organized by specialty, which met bimonthly. These meetings brought primary care and specialist doctors together to discuss care coordination and best practices, and had recently evolved into peer review sessions where individual physicians shared productivity and performance data in a collegial setting. Clinical programs that emerged from this process had reduced hospitalizations among patients with congestive heart failure, asthma, and other conditions.

Stemming Losses

CHI was preparing to significantly reconfigure its physician relationships, particularly with employed practices. "Everybody's losing money on employed doctors," acknowledged IMM's COO John Fohrer. Most acquisition-era contracts had paid physicians more than they were producing while providing benefits exceeding what doctors had previously received. CHI was being transparent with its medical staff about the situation: the acquisitions had been necessary to retain the primary care base, but the financial drain was unsustainable long term.

Options for adjusting compensation were constrained. The hospitals had been limited to a "stairstep" approach that modestly reduced pay as contracts came up for renewal, fearful that deeper cuts would drive physicians to competitors. So far, CHI reported no significant physician dissatisfaction or defection, perhaps because rival systems had reached similar conclusions about the risks of overpaying for physician practices. Overall, CHI was financially stable but needed better margins to finance growth, and it had been seeking a merger partner for some time. The management service organization, Indianapolis Medical Management, was expected to play a growing role in mediating the evolving relationship between hospitals and their doctors.

Sources and Further Reading

Kaiser Family Foundation -- Employer Health Benefits Survey -- Annual data on employer-sponsored health insurance.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and programs.